In each of the following cases, explain clearly how the CPI might misrepresent changes in consumer prices (Commodity substitution bias, Introduction of new goods, or Un-measured quality changes). In each case, speculate as to whether CPI overstates or understates consumer expenses. (a) By 1990, expensive personal computers became a common expenditure in consumer baskets. However, some governments were still calculating the consumer’s basket using a 1975 survey. (b) Between 2007 and 2015, there were significant improvements in smartphones. (c) Compared to 1970, households in 2015 took more vacations. (d) Food quality has deteriorated over time, even as consumers purchase the same amount
In each of the following cases, explain clearly how the
(a) By 1990, expensive personal computers became a common expenditure in consumer baskets. However, some governments were still calculating the consumer’s basket using a 1975 survey.
(b) Between 2007 and 2015, there were significant improvements in smartphones.
(c) Compared to 1970, households in 2015 took more vacations.
(d) Food quality has deteriorated over time, even as consumers purchase the same amount.
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